Economic progress is not a smooth process. Instead, it is a gradual and often imperceptible uptrend punctuated by occasional leaps forward.
Often, these leaps come as a side effect of the struggles that, all too often, define the human condition.
For example, many of the general-purpose technologies in industry, transport, energy and communication that levelled up general living standards during the 20th century are rooted in the efforts to win two world wars.
The pandemic is a health tragedy with devastating consequences
Today, the world faces a serious threat from the COVID-19 pandemic.
The health, social and economic costs are huge and rising. Lockdowns, social distancing and other such measures to contain the spread of the virus have disrupted major areas of services and manufacturing activity, while temporarily forcing closures on restaurants, entertainment and non-essential store retail.
However, reacting to these acute challenges, business, consumers and governments have found alternative ways to operate. With these changes come major distributional effects across the economy. Some are visible already.
In professional industries, workers now use remote-working technologies and videoconferencing software instead of making the daily trip to the office.
In manufacturing industries, firms are trying to shorten and diversify their supply chains as they react to a disruption of trade flows.
For producers to remain competitive as they bring parts of their production back onshore, they will need to invest in state-of-the-art technologies such as advanced robotics and 3D printing.
While social life may return to normal eventually once the pandemic has passed, many firms, recognising that through adaptation they have achieved productivity gains, will continue to partly or even fully continue with their new approach.
Many of their new habits will become normal and permanent.
The catalytic effect of the pandemic and lockdowns has de facto forced major parts of the economy to adopt technologies that best-in-class firms have been using for a number of years.
These include the well-known US Silicon Valley giants and the top European manufacturers. Lagging parts of the economy are leaping forward towards the known technology frontier.
Against these positive trends, traditional in-store retailing has collapsed along with the usage of transport networks that take people to and from work.
But these concentrated costs should be measured against the widespread savings in terms of both time and income for workers, as well as clear benefits for the environment coming from lower emissions.
Similarly, with more onshoring by manufacturers and the shift towards virtual meetings in services, growth in international transport of goods and people could be materially lower than before.
Once again, the costs to these industries and their workers should be weighed against the greater benefits to wider society and to firms that will spend less on business travel and haulage.
The flipside of the fall in income and employment in affected sectors is surplus income in other parts of the economy that will eventually be spent in new and growing sectors. The pandemic looks set to accelerate the normal process of shifting from old to new sectors that comes with economic progress.
It also seems very likely that these shifts will echo through the real estate sector over time.
Demand for housing may shift from inner cities towards commuter belts and remote areas.
In commercial real estate, offices and retail may suffer, while demand for factories and warehouse space rises.
The immediate negative economic impact of the pandemic, combined with ongoing and future economic restructuring, presents a host of complex challenges and trade-offs for economic policymakers.
Containing the huge damage to businesses and employment from the mega-recession while taking the right steps to engender a fast recovery is the current priority.
But as the recovery takes hold over time, policymakers should turn their attention to promoting the long-run benefits of rapidly shifting towards a more advanced and eco-friendly economy. That could include retraining schemes for laid-off workers and incentives for new business formation in high-growth sectors.
The pandemic is a health tragedy with devastating consequences for many people around the world. But by challenging deeply ingrained business habits, it has forced a positive adaption in major parts of the economy.
In advanced economies, governments and businesses seem to be embracing the changes, while offering generous support to the immediate losers to help smooth the process.
Still in the middle of a major health and economic crisis, it is not easy to see how things from an economic point of view may turn out for the better in the end. However, some early signs are decidedly positive.
Kallum Pickering is senior economist at Berenberg Bank
This article was taken from the October/November 2020 issue of The Treasurer magazine.